Last month, President Trump signed an executive order giving the Department of Health and Human Services and “other executive departments and agencies” the authority and discretion to roll back certain aspects of the Affordable Care Act (ACA). It was unclear at the time what that might mean for the Internal Revenue Service (IRS) which has been tasked by Congress with enforcement of several key components of ACA, including the individual mandate. Now, we may have an answer: the IRS appears to be easing off of enforcing the mandate.
Under the ACA, you’re required to demonstrate that you have “essential minimum coverage.” You’re considered covered if you have insurance through the government, including Medicare, Medicaid, CHIP, retiree coverage, TRICARE, or VA health coverage; private insurance that you purchased on your own including COBRA coverage and coverage obtained through the Health Insurance Marketplace; or provided by your employer (even if you didn’t pay anything for the coverage). Most taxpayers – about 130 million or so – will report coverage. Those that don’t have coverage must claim a waiver or exemption (typically based on hardship) or be subject to a penalty called the shared individual responsibility payment. For the 2016 tax year, that penalty is equal to 2.5% of your adjusted gross income (AGI), or $695 per adult and $347.50 per child, up to a maximum of $2,085, whichever is higher. The amount is figured and reported on your 2016 tax return, payable by April 18, 2017.
The quick and easy way for most taxpayers to indicate that they have coverage is to tick the box on line 61 on page 2 of their individual income tax return:
Failure to tick the box could have, in past years, resulted in a kickback of the tax return. However, the IRS has indicated that for 2017, it will accept and process tax returns where a taxpayer is silent on coverage.
Specifically, the IRS stated, “the IRS has decided to make changes that would continue to allow electronic and paper returns to be accepted for processing in instances where a taxpayer doesn’t indicate their coverage status.” What this means is that returns will not be “systemically rejected by the IRS at the time of filing” which has the effect of “allowing the returns to be processed and minimizing burden on taxpayers, including those expecting a refund.” The IRS has clarified that this is consistent with their previous policy. According to the agency, “when the IRS has questions about a tax return, taxpayers may receive follow-up questions and correspondence at a future date, after the filing process is completed. This is similar to how we handled this in previous years, and this reflects the normal IRS post-filing compliance procedures that we follow.”
What this should mean is that taxpayers may leave line 61 blank and still have their tax returns processed. But don’t get too excited: it’s not unlikely that some software systems and tax preparers may still insist on ticking the box.
All of that said, ACA remains on the books as good law. The IRS is reminding taxpayers that they are required to follow the law and pay what they may owe. It’s worth noting, however, as I’ve written before, that Congress did not give IRS any real “teeth” for enforcement; it will be interesting to see how that will play out this year.
To be clear, the President’s recent executive order didn’t obliterate ACA: only Congress can make that change. When and how they are going to do that – and what it means for taxpayers – is currently up for debate. Until then, federal agencies like IRS are using discretion to determine how to roll out the provisions in the order so be prepared for some confusion and inconsistency.
